The news is out and it was expected too. Narayan Murthy
[NRN, as he is called by some in Press] has increased salaries by average 8%.
This comes after a freeze which Shibulal, CEO announced last year following
poor performance of Infosys.

This change and raise was expected by all, and nothing in it
surprises anyone. The quantum of increase is also not something like what Maruti
announced following its attempts to assuage feelings of its workers – they claimed
that they gave a heft jump of almost 50%. [PUDR says this is eye wash. For
those who want to read an excellent analysis and the ‘real’ story, please take
a dekko at PUDR’s report ‘Driving Force.’ It is available on their website.]

Maruti pays barely 2% of its Net sales as Employee cost,
whereas Infy pays over 50%. That is because the real assets of an IT company
are its people. This is where the difference is and it also ends there.

While TCS and Wipro reportedly paid 8 to 10% salary hike in
2012, Infy said that it did badly in 2012 so it was skipping the annual
increment. It makes sense that if the company is not doing well then the
employees will be affected, and perhaps can be expected to make sacrifices. The
extent of such ‘sacrifice’ [I can’t think of a better word, ‘sacrifice’ somehow
brings in religious or pious flavour to it, quite unwarranted here!] is
arguable but the principle seems to be okay.

The question is then did Infosys do very well to increase
the salaries? We know the answer, no, they goofed up! Then why increase
salaries?

The truth lies somewhere in between: The fact is that costs
must be controlled, but market situation cannot be ignored. Employees often
accept a lower increase when an organisation with otherwise excellent track record
does badly in one or two years. But they will not forever stay out of sync with
market on salaries. It is very difficult to say what ‘market’ rate is because
it requires making some assumptions, and each set of assumptions can produce a
different rate. The trouble is that once the employees start thinking [which
they do when a ‘freeze’ is imposed] that they are being paid less than market,
they perceive a high gap between their and their contemporaries salaries,
whether it exists or not. To add to this is the natural tendency of people to
compare one’s salary with somebody who is drawing higher in other company.

Managing compensation is not difficult as long as one makes
the philosophy clear. Dr Jeffrey Pfeffer talks of ‘six myths about pay.’ One of
those myths is that “keeping labour costs low creates potent and sustainable competitive
edge.” It does not. If we go by Infosys story [though only of one year], it
tells this point emphatically. There is no substitute for a clearly defined and
communicated policy. And tweaking compensation is not a policy.

A salary increase perceived as a ‘comeback gift’ even if
unintended, does a great invisible damage. It sends very wrong signals.
Management policies get equated to personal idiosyncrasies of its MD or CEO. This
in turn has a telling effect on whether personality cult [read sycophants] will
succeed or whether cold logic and rationale of business. Needless to say who
will win.

Maruti on the other hand clearly made a feudal decision. The
entire story of Maruti’s labour relations smacks of feudal spirit. Maruti’s
wage hike was like ‘country liquor.’ It was supposed to have a knock-out effect
in one shot. What Narayan Murthy has delivered is an ‘Alcopop,’ like a Bacardi breezer
– it is mildly alcoholic, it raises spirits and it does not carry as much
disapproval as the country liquor.